President and CEO Per Samuelsson's comments on the year-end report 2017
"We’re not satisfied with our earnings, but are heading in the right direction after our major realignment."
Beijer Electronics Group finished last year well, with high organic sales growth in the fourth quarter. Order intake remained high, even if it was unchanged due to strong comparative figures in the previous year. Overall, we continued to deliver according to our growth plan.
However, the Group’s EBIT remains at an unsatisfactory level. Westermo’s earnings increased and it attained a 10% margin, but has more to offer. Beijer Electronics returned a 2% margin, and Korenix posted an operating loss. In total, this means we are not satisfied with earnings overall. The underlying earnings trend is also pointing in a positive direction—EBITDA increased in every quarter of 2017 year on year, and was up by 25% overall in the year. We also posted a positive cash flow after investments of 35 MSEK for the fourth quarter.
Meanwhile, EBIT was charged with increasing depreciation and amortization. An impairment loss taken in our Korenix business entity also meant that consolidated fourth-quarter EBIT was down year on year. But even excluding this impairment, EBIT remains low. Apart from increasing depreciation and amortization, it is primarily explained by extensive product development initiatives, and our focus on selective marketing and sales initiatives. Although this has a negative short-term earnings impact, we expect it to pay off over time.
The Westermo business entity is evidence of this. After a downturn in 2016, Westermo made a brisk rally, and reported a positive year in terms of order intake, sales and earnings. The Beijer Electronics business entity is definitely heading in the right direction with very promising sales of our new X2 terminals, several new software and hardware solution launches, and lots more in the coming year. Continued volume expansion will become evident in progressively improving earnings. The Korenix business entity had a challenging year, realigning its organization with an all-new management and extensive staffing changes. Nevertheless, Korenix succeeded in maintaining sales fairly well, although it was compelled to report a loss for the full year, some of which consisted of impairment and non-recurring expenses.
After the Group’s major realignment in 2016, with a number of structural moves, rationalization and an improved strategy with a sharper focus on software and customer orientation, 2017 featured extensive product development and marketing initiatives. Staffing in production and administration was downsized, while employee headcount in development, marketing and sales increased. In parallel, we executed a competence shift, matching downsizing with new hiring.
Many things fell into place in the year—fine-tuning of various sales channels on certain markets remain within Beijer Electronics. Westermo is honing its organization with aims including improved efficiency in production/logistics. Korenix is focusing on recovery in 2018. It is noteworthy that the Group’s altered focus, with a higher share of proprietary products, brought better gross margins in the past two years compared to previously. This trend may accentuate with progressively increasing software content. Overall, this means we will secure better leverage in earnings given higher sales.
We are also satisfied with the outcome of the rights issue we completed at the beginning of the fourth quarter, raising 217 MSEK for the Group. This capital injection has strengthened the Group’s financial position, and gives us more room to maneuver for aggressive initiatives over and above those we have executed. Our plans including screening small-scale acquisitions.
Coincident with our aggressive strategy, we reinforced the Group’s management capability in the year. New executives are in place within the three business entities. At the end of2017, we created a new Group Management, which includes the three heads of our business entities, while also appointing our Group CFO as Executive Vice President.
Beijer Electronics Group is converging on its targets of yearly growth of 7% and a 10% margin over a business cycle. We achieved our growth target in 2017. In 2018, we expect that the Group can increase sales and earnings compared to 2017.
President and CEO